IBM Exec Says Microsoft Made Threats
Weeks before the roll-out in 1995 of an important new version of Windows, Microsoft threatened not to sell IBM Corp. the operating system that it needed for its line of personal computers, an IBM software manager told lawyers Thursday.
The threat by Microsoft, facing government antitrust charges in Washington, would have been devastating to IBM’s computer business, which relies on Windows. The deposition testimony of Garry Norris, who negotiated important sales contracts for Windows in 1995 and 1996, appears to support Justice Department allegations that Microsoft bullied the nation’s computer makers with its influence.
Norris said IBM was negotiating in 1995 for the price it would pay for Windows 95, which was shipped starting in August of that year. Norris said a Microsoft employee called late in July and told him: “I’ve been instructed to cut off negotiations with IBM.”
Norris attributed Microsoft’s aggressiveness toward IBM to its rival operating system called OS-2. The popularity of that software waned in 1994.
“Microsoft told us repeatedly, ‘Because you compete with us, you’re going to get unfavorable terms and conditions,’ ” Norris said.
Norris will be the government’s second witness during the rebuttal phase of the trial, which resumes in Washington on Tuesday after a 13-week recess.
Norris was uncharacteristically open about the prices IBM paid for Microsoft software. He said IBM paid $9 for an earlier version of Windows in 1994, but said Microsoft was demanding $46 for the newer version in 1995, dramatically increasing IBM’s own costs.
Although the exact price that Microsoft charges computer makers for Windows is one of the industry’s most closely guarded secrets, previous testimony indicated that favored companies, such as Compaq Computer Corp. and Dell Computer Corp., generally pay less than IBM.
Norris said Microsoft gave a better price to Compaq. “I was told they received that deduction because they didn’t compete with Microsoft.”
Microsoft contends that Compaq received lower prices because it helped develop some important technology that was incorporated into the newer version of Windows in 1995.
The government alleges as part of its antitrust case that Microsoft bullied the nation’s computer manufacturers, who must buy Windows at a reasonable wholesale price to survive in a highly competitive industry.
Government lawyers contend that Microsoft, whose Windows software runs most of the world’s personal computers, uses its prices to punish its enemies and reward its friends.
